US

(New York)

The whole market (and the media) seems to be worried about a looming recession. Driving that fear are many factors: a surging economy, very high market valuations, and a nearly inverted yield curve. Several big banks and research houses have put out warnings of a looming recession and bear market. However, one of the most prominent, Goldman Sachs, has just gone on the record doing the opposite. The bank says there is only a 36% chance of recession in the next three years, a figure below the historical average. “There has been increasing investor interest in the chance of a recession in the U.S. over the next few years … Our model paints a more benign picture”, said GS economist Jan Hatzius. The bank did note that if a US recession does occur, it will likely drag many developed economies down with it.


FINSUM: Recessions are famously hard to call, so we won’t go one way or the other. That said, there are some signs that a recession is looming. We certainly think the odds are higher than 36% for the next three years.

(New York)
The last few months have been bleak for the US housing market. There has been a steady stream of negative data showing that the market is definitively slowing. Now a new one is emerging—bank lending is contracting quickly in the space. The fall off is so strong that banks are laying off workers in lending units. Both sources of demand for mortgages—refinancing and new home purchases—have dried up as interest rates and housing prices have risen. July showed the fifth straight month of declining home sales, coming in the time of the year when they should be strongest. Speaking about the state of home prices and mortgage demand, the chief economist at Fannie Mae says, “people are saying, ‘at these prices, and with rates rising, I’ll stay where I am’”.


FINSUM: We believe the US is in for a long winter of falling home prices. We think the market is at a turning point right now where sellers are trying to cling to high prices, but buyers have finally stopped giving in.

(Washington)

The US and Mexico have reached an important trade agreement after a year of acrimonious bickering over Nafta. The new deal, from which Canada is conspicuously absent, will put harder trade restrictions on Mexico. The deal is a sign that Trump and the US are willing to ease their fight with neighbors as the country ramps up a battle with China. The Trump administration was in a rush to get a deal done before a power change coming in Mexico. The deal will no longer be called Nafta, but the US-Mexico trade agreement.


FINSUM: This is encouraging from our perspective. The last thing we want right now is a multi-fronted trade war. Hopefully a deal with Canada can be reached as well.

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